i DECLARATION I hereby declare that the thesis entitled ‘Some solutions to restrain credit risk at Bank for Investment and Development of Vietnam Vinh Phuc Branch’ is entirely my own work. All of data in my thesis is used honestly. I also declare that my researching results have not been previously or concurrently published in any other works. The Thesis Author Nguyen Huy Binh ii ABSTRACT The aims of this thesis are to clarify, explain basic theories of credit risk in business activities of commercial banks and analyze, assess the risk situation at BIDV Vinh Phuc branch. Moreover, the thesis also proposes some solutions to restrain credit risk at the branch. In the first part, literature reviews of commercial banks, bank credit and banking risks are presented. Furthermore, this part focuses on explaining general theories of credit risk such as causes, consequences, features and signs of the risk. Then the thesis mentions general introduction about BIDV Vinh Phuc branch, overview of business operations of the branch is also provided in this part. In addition, credit risk situation and the situation assessment at the branch are analyzed to find out remarkable achievements and remaining difficulties. In the last part, the thesis suggests some solutions to restrict credit risk at the branch and proposals to BIDV, State Bank of Vietnam and the Government. The thesis hopes to offer all banks managers and credit staff useful tips on preventing and constraining credit risk, and thus make a small contribution to improve the business result of Vietnamese banking system. iii ACKNOWLEDGEMENT This thesis would not have been possible without the support, the guidance and the help of several individuals who, in one way or another, contributed and extended their valuable assistance in the preparation and completion of this study. First and foremost, I would like to express my utmost gratitude to Ms Bui Thi Bich Thuy, my supervisor, for her constructive feedbacks and useful advices. This thesis would have remained a dream had it not been for her persistent help. I also would like to offer my sincere thanks to Mr. Kim Tuan Anh, director of enterprise customer relation department. He advised me some research ideas and assisted me a lot in collecting necessary data for the study. In addition, I owe particular thanks to the staff of BIDV Vinh Phuc branch whose support during my internship period I will never forget. Last but not least, I am very grateful to my beloved parents, my numerous friends who endured this long process with me and offered me great support, encouragement and love at all times. iv ABBREVIATION Agribank: Vietnam Bank for Agriculture and Rural Development BIDV: Joint Stock Commercial Bank for Investment and Development of Vietnam CIC: Credit Information Center EVN: Vietnam Electricity NPL: Non-performing loans SBV: State Bank of Vietnam VNPT: Vietnam Posts and Telecommunications Group v LIST OF TABLES Table 1: Business result 25 Table 2: Capital mobilization situation 26 Table 3: Credit activities situation 27 Table 4: Outstanding loans situation 28 Table 5: Overdue debts situation 29 Table 6: Overdue debts based on overdue time 30 Table 7: Overdue debts based on currency 31 Table 8: Overdue debts based on collateral 32 Table 9: Non-performing loans situation 33 Table 10: Non-performing loans structure 34 TABLE OF CONTENTS DECLARATION……………………………………………………………i ABSTRACT…………………………………………………………………ii ACKNOWLEDGEMENT iii ABBREVIATION………………………………………………………… iv LIST OF TABLES………………………………………………………… v TABLE OF CONTENTS 1 INTRODUCTION 1 CHAPTER 1 4 LITERATURE REVIEW 4 1.1 OVERVIEW OF COMMERCIAL BANK 4 1.1.1Definitions 4 1.1.2Characteristics of commercial banks 5 1.1.3Functions of commercial banks 6 1.2 OVERVIEW OF BANK CREDIT AND BANKING RISKS 7 1.2.1Bank credit 7 1.2.1.1Definitions 7 1.2.1.2Classification of bank credit 7 1.2.1.3Roles of bank credit 8 1.2.2Banking risks 10 1.2.2.1Definitions and nature of risk 10 1.2.2.2Definition of banking risks 10 1.2.2.3Classification of banking risks 10 1.3 CREDIT RISK IN BUSINESS OPERATION OF COMMERCIAL BANKS 13 1.3.1Definitions 13 1.3.2Features of credit risk 14 1.3.3Signs to identify credit risk 14 1.3.4Sources of credit risk 15 1.3.4.1Objective sources 15 1.3.4.2Subjective sources 16 1.3.5Impacts of credit risk 19 1.3.6Criteria of measuring credit risk 20 CHAPTER 2 22 CREDIT RISK RESTRAINT SITUATION AT BIDV VINH PHUC BRANCH 22 2.1 GENERAL INTRODUCTION ABOUT BIDV VINH PHUC BRANCH 22 2.1.1Establishment and development history of BIDV 22 2.1.2General introduction about BIDV Vinh Phuc branch 23 2.1.3Organization structure of BIDV Vinh Phuc branch 24 2.2 OVERVIEW OF BUSINESS PERFORMANCE OF BIDV VINH PHUC BRANCH 25 2.2.1Business result 25 2.2.2Capital mobilization situation 26 2.2.3Credit activities situation 27 2.3 SITUATION OF CREDIT RISK AT BIDV VINH PHUC BRANCH 28 2.3.1Outstanding loans situation 28 Table 4: Outstanding loans situation 28 2.3.2 Overdue debts situation 29 2.3.3Non-performing loans situation 32 2.4 ASSESSING THE SITUATION OF RESTRAINING CREDIT RISK AT BIDV VINH PHUC BRANCH. .34 2.4.1Policy of managing credit risk at BIDV Vinh Phuc branch 34 2.4.2Remarkable achievements 34 2.4.3Remaining difficulties 35 2.4.4The reasons of credit risk at BIDV Vinh Phuc branch 35 2.4.4.1Objective reasons 35 2.4.4.2Subjective reasons 36 CHAPTER 3 38 SOLUTIONS TO PREVENT AND RESTRAIN CREDIT RISK AT BIDV VINH PHUC BRANCH 38 3.1 ORIENTATION OF DEVELOPING CREDIT ACTIVITIES OF BIDV VINH PHUC BRANCH 38 3.1.1Orientation of developing credit activities of BIDV 38 3.1.2Orientation of developing credit activities of BIDV Vinh Phuc branch 39 3.2 SOLUTIONS TO PREVENT AND RESTRAIN CREDIT RISK AT BIDV VINH PHUC BRANCH 39 3.2.1Improving the quality of appraisal 39 3.2.2Complying with the credit process tightly 40 3.2.3Building durable relationships with customers 41 3.2.4Increasing secured loans 42 3.2.5Applying risk dispersion solutions 43 3.2.6Improving the effectiveness of internal control tasks 43 3.2.7Accomplishing the credit information system 44 3.2.8Enhancing the qualification of the branch’s credit staff 45 3.3 SOME PROPOSALS 46 3.3.1Proposals to the Government 46 3.3.2Proposals to State Bank of Vietnam 47 3.3.3Proposals to BIDV 48 CONCLUSION 50 REFERENCES 51 1 INTRODUCTION 1. Rationale of the study Banking industry is always an indispensable part of every economy. The efficient and effective performance of the banks over time is an index to assess financial stability in any country. Thus, when a banking system faces financial crises or even collapses, the economy will suffer serious consequences such as high unemployment and inflation rate, fall in standard of living, stagnant industry…The reasons for these crises are various but the main one is credit risk. Credit risk is one of the oldest and most frequent forms of risk faced by banks. The higher the exposure of a bank to credit risk, the higher the tendency of the banks to suffer losses and vice versa. In addition, a bank exists not only to accept deposits but also to grant credit facilities so it is inevitably exposed to the risk. In recent years, banks in Vietnam have experienced a lot of difficulties in business activities due to credit risk. Therefore, preventing and restricting the risk are extremely urgent and essential tasks. However, Vietnamese banking industry has not been stable yet because it is in the process of reform and integration with the banking sector of other countries. Moreover, the credit operation of commercial banks is not very efficient and safe. Thus, how to limit credit risk effectively is always a big challenge for all banks in Vietnam in general and for Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) in particular. From the above reasons, it is, to my mind, an urgent need to curb credit risk at BIDV. Therefore, in my graduation thesis, I decide to choose the topic Nguyen Huy Binh CQ47/51.01 [...]...2 ‘ Some solutions to restrain credit risk at Bank for Investment and Development of Vietnam Vinh Phuc branch ’ 2 Aims of the study The specific aims of the research are clarifying and explaining basic theories of credit risk at commercial banks Besides, the writer analyzes and assesses credit risk situation and reasons of the risk at BIDV Vinh Phuc branch At last, some solutions are proposed to restrict... period at BIDV Vinh Phuc branch and in learning English for Finance and Accounting at Academy of Finance provide me favorable conditions to complete the study 4 Scope of the study This paper is intended, as the title suggests: Some solutions to restrain credit risk at Bank for Investment and Development of Vietnam Vinh Phuc Branch , to mention basic theories of credit risk at commercial bank and situation,... significance of the study The second part is the main part of the paper with three chapters: Chapter I deals with general theories about commercial bank, bank credit, banking risks and credit risk in business activities of commercial banks Chapter II refers to the situation of restraining credit risk at BIDV Vinh Phuc branch Chapter III mentions some solutions to restrain credit risk at BIDV Vinh Phuc branch. .. equities and bullion In addition, credit risk may also arise from off balance sheet transactions and take the form of delivery or settlement risk Because credit risk can cause serious consequences to banks so how to restrict credit risk is always a top concern of bank managers Interest rate risk: A fundamental banking objective is to borrow funds at one rate and to lend them at a higher one Interest rate risk. .. activities of banks An appropriate credit policy will help banks to gain profit and decrease risks and vice versa However, the policy of some banks is not very reasonable, for example, focusing on increasing total outstanding loans rather than credit quality or paying more attention to collateral than the efficiency of projects Therefore, banks need to apply an adequate credit policy to curb the risk Additionally,... becomes weaker due to credit risk, the world economy may face crises 1.3.6 Criteria of measuring credit risk Credit risk is inevitable in banking business activities so minimizing the risk is always a top target of all banks To assess the credit risk situation at a certain bank, banks need to use some criteria Firstly, debt classification of State Bank of Vietnam is needed According to Decision No.493/2005/QD-NHNN... 1.2.2.2 Definition of banking risks Banking risks are those risks the banks are confronted with in their current operation and the risks may have potentially negative effect on banks’ business There are some types of banking risks which can be classified as the following 1.2.2.3 Classification of banking risks Credit risk: The most significant and persistent risk faced by banks is credit risk It may be... risk Thirdly, the risk decreases banks’ profit Profit from making loans accounts for 4080% of banks’ profit When this type of risk occurs, banks may not collect the interest from borrowers and they have to use provision for the risk so the profit is reduced very much At last, as a result of three above consequences, banks may go bankrupt Besides, credit risk has negative impacts on customers When banks... payments for at least 90 days The loans are classified from category 3 to category 5 in accordance with Decision No.493/2005/QDNHNN The ratio is also used to estimate the credit quality of credit institutions Nguyen Huy Binh CQ47/51.01 22 CHAPTER 2 CREDIT RISK RESTRAINT SITUATION AT BIDV VINH PHUC BRANCH 2.1 GENERAL INTRODUCTION ABOUT BIDV VINH PHUC BRANCH 2.1.1 Establishment and development history of BIDV... reasons of the risk and solutions to solve this matter at BIDV Vinh Phuc branch In addition, all information about business performance of BIDV Vinh Phuc branch from 2010 to 2012 is also used for the study 5 Organization of the study Nguyen Huy Binh CQ47/51.01 3 The study is divided into three parts: The first part is the introduction including the rationale, aims, methods, scope, organization and significance . Investment and Development of Vietnam Vinh Phuc Branch , to mention basic theories of credit risk at commercial bank and situation, reasons of the risk and solutions to solve this matter at BIDV Vinh. 3 38 SOLUTIONS TO PREVENT AND RESTRAIN CREDIT RISK AT BIDV VINH PHUC BRANCH 38 3.1 ORIENTATION OF DEVELOPING CREDIT ACTIVITIES OF BIDV VINH PHUC BRANCH 38 3.1.1Orientation of developing credit. i DECLARATION I hereby declare that the thesis entitled Some solutions to restrain credit risk at Bank for Investment and Development of Vietnam Vinh Phuc Branch is entirely my own work. All of